Is the Rate of Innovation Slowing Down?

Technological innovation is vital to human well-being. In a world of steadily increasing population and steadily declining natural resource quality and quantity, only innovation makes it possible for us to maintain our quality of life, let alone improve it. Read this from Randall Parker. He talks about whether the proportion of innovation that must be devoted to the maintenance of civilization is increasing. In short, are we having to run faster just to stay in the same place? There is however a question at another level – whether the overall rate of innovation is slowing down?

To ask whether the rate of technological innovation is slowing down may seem absurd to those over-50s who already feel overwhelmed by the rate of change in their lives. However, if we differentiate between fundamental innovations/inventions – the last being probably the LASER in 1960 (leaving aside the question of what the military has possibly kept under wraps since then) and incremental innovation, this being the application and the extension of the fundamental innovations/inventions, then there are grounds for suspecting that this is the case. Where is the biotech revolution, the nanotechnology, the fusion energy? These things have been talked about for decades.

Some may point to the number of patents issued, so as to reassure us that all is well. Patents though, serve many purposes, often involving legal tactics or business strategy, as this piece shows. It would seem impossible to measure the rate of innovation objectively.

Let us look at the various factors, which may influence the rate of innovation, to see if we can get a feel for the balance of forces, in order that we may make at least a subjective judgement.

  1. The sheer numbers of people with at least some technical, engineering or scientific knowledge. This figure is obviously greater than it has ever been, meaning that the number of those confronted with problems requiring innovation, who at the same time have the base knowledge from which innovative solutions can come is also much higher than ever.
  2. The level of social acceptance/encouragement of innovation. Innovation often threatens the existing balance of power within societies, raising some up and casting others down. Even when the potential winners outnumber the potential losers, the gains are often spread across many, while the losses are concentrated on a few, who will be more motivated to resist change than the potential winners are to support it. When the losers are those who presently occupy top positions, then change can be very difficult/impossible. Some societies, especially the United States of the last 150 years, have been particularly receptive to innovation, so much so that I would argue that it forms part of the American character.
  3. The availability of capital is a requirement for significant innovation. It can be assumed that depth and transparency of capital markets are positive factors. On the other hand, when it is possible to make money by speculating in boom and bust financial markets  precious capital is diverted. Innovation flourishes best when capital markets reward the creation of actual value ie innovation, rather than just functioning as value transfer mechanisms from outsiders to insiders. It should be clear to all that the big winners in the capital markets in recent decades have been those who have been able to arrange significant value transfer to themselves without creating much in return.
  4. Large debts/deficits of sovereign/public borrowers are also inimical to innovation. Large amounts of capital are channeled away from innovative borrowers towards the sustenance of welfare states/bureaucracies. This is often mandated by law, with insurance companies, pension funds etc. often compelled to allot large proportions of their funds to government bonds.
  5. Time Orientation and it’s effects on savings rates. Higher savings rates mean more capital available for investment – innovation.
  6. Demography. The forces of human nature tend to make people more resistant to change as they grow older. Innovation also tends to come from younger age groups – up to 45.
  7. Education Systems. Is there a symbiosis of theory and practice? Is initiative encouraged? Or is the system dominated by credentialism and grade inflation, with ever more pieces of paper being issued to ever more people and each piece of paper meaning correspondingly less.
  8. Intelligence, those of higher IQ are not only more capable of innovation, there is also plenty of research showing high IQ individuals to be more accepting of novelty as well as having higher savings rates – see point 5 above.
  9. Is innovation rewarded. In concrete terms this means low marginal tax rates so that inventors and entrepreneurs are adequately rewarded for their endeavours. A related question though is whether innovators enjoy high social status, and whether engineers in general enjoy comparable status to say lawyers or physicians.

This is not an exhaustive list, but it does allow us to say that in the last few decades the picture has been deteriorating, Consider the situation in the West (Western Europe and North America), the drivers of the great advances of the last several hundred years. There is evidence here of falling IQ levels. Stock markets often seem more like casinos than mechanisms of rational capital allocation, middle-class tax rates have been generally rising and the state bureaucracies demand ever more scarce capital for themselves. Savings rates have fallen and debt-driven consumption has risen. Populations are aging and birth rates are falling. In many of these societies engineers rank relatively low in the pecking order, indeed software engineers are derided as ‘nerds’. Education systems in many countries seem inadequate to the task of turning out students who can effectively earn their way in the 21st century – declining proportions of students in the STEM (Science, Technology, Engineering, Mathematics) subjects. – but are instead dominated by credentialism and political correctness. It is true that western societies are still mostly very receptive to innovation, but supply is as necessary as demand.

The darkest hour is often the one before dawn. I hope to go into the reasons for optimism. in a future post.

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