Another Slowdown to Worry About — Innovation?

Stephen DeAngelis

September 23, 2008

Before Hurricane Ike threatened oil production and refining facilities in the Gulf of Mexico, oil prices had begun to creep down from their record setting highs. The reason, as even politicians now admit, is that there appears to be a global economic slowdown in work. To help stop the bleeding, the U.S. Government has taken over Fannie Mae and Freddie Mac and seeking $700 billion for a bailout plan following the collapse of Lehman Brothers. Claire Cain Miller, writing in the New York Times last month, reports that at least Silicon Valley entrepreneur is concerned that there is also an innovation slowdown brewing [“Another Voice Warns of an Innovation Slowdown,” 31 August 2008]. This slowdown, she warns, could have far-reaching and negative effects that could even surpass the current economic challenges facing the U.S. economy. The entrepreneur upon whom Miller’s story focuses is Judy Estrin, the former chief technology officer of Cisco Systems.

“Judy Estrin … has founded four technology companies. Yet she is deeply worried that Silicon Valley — and the United States as a whole — no longer foster the kind of innovation necessary to develop groundbreaking technologies and sustain economic growth. ‘I am generally not an alarmist, but I have become more and more concerned about the state of our country and its innovation,’ she said …, explaining why she wrote her book, ‘Closing the Innovation Gap.’ … ‘We have a national innovation deficit.’ Ms. Estrin’s book is the latest call to action during the last several years by scientists, technologists and political leaders worried about the country’s future competitiveness in technology.”

Using the word “gap” to generate fear or concern, began when the Soviet Union launched Sputnik and the U.S. declared there was a “space gap.” Since then, anytime someone spots a challenge that they think needs addressing, they declare that some kind of “gap” exists. By declaring something a “gap,” a person is emphasizing that it is more than a challenge, more than a problem, it’s a crisis — a wound that desperately needs closing. The “innovation gap,” if it exists, is just beginning to open. Miller continues:

“In 2005, the National Academies published ‘Rising Above the Gathering Storm,’ a report requested by Congress, which found that federal financing of research in the physical sciences was 45 percent less in 2004 than in 1976 and that 93 percent of students in grades five through eight learn science from teachers who do not hold degrees or certifications in the topics. In 2007, the book ‘Innovation Nation’ by John Kao, a business consultant, revived the debate. And this year, both presidential candidates have made government support of innovation and technology a central part of their campaign platforms.”

Miller goes on to report that not everyone sees the “innovation gap” that seems so apparent to Ms. Estrin.

“‘The whole innovation crisis thing is a bit overblown,’ said Paul Saffo, a technology forecaster. Innovation in the natural world, in the form of mutation, is lethal, so species do it only when they are under dire stress, he said. ‘What makes Silicon Valley unique is that this place has stumbled onto a way to sustain innovation even when the place is doing well,’ he said.”

As far as the global economy is concerned, Saffo is probably correct that the innovation gap is overblown. In a globalized world, ideas are fungible and the flow of ideas becomes as important as the flow of capital, resources, and people. The Internet permits international collaboration in a way never before possible. Miller explains why Estrin believes that American innovation is critical to the future.

“Ms. Estrin argues that short-term thinking and a reluctance to take risks are causing a noticeable lag in innovation. She cites a variety of contributing factors. A decline in federal and university financing for research has dried up new ideas, she said. When research does produce new technologies, entrepreneurs and the venture capitalists who back them have been too cautious to make big bets — especially after the costly failures of the dot-com bust. If start-up companies do find financing, she said, new regulations make it hard for them to grow, and the focus of investors on short-term performance discourages companies from taking risks.”

When you get to the bottom line, it isn’t so much a lack of ideas that worries Estrin (although that is part of it), it is getting ideas to market that concerns her; hence, her emphasis on regulations and financing. Her prescriptions for closing the innovation gap, as reported by Miller, don’t appear very potent.

“Ms. Estrin’s suggestions for bolstering innovation range from the vague, like advising venture capitalists and entrepreneurs to take more risks, to the specific, like mandating that schools pay teachers higher salaries. Some of her prescriptions are unlikely to become reality, like her idea for a new government body modeled after the Federal Reserve that sets science policy without Congressional input.”

I’m probably not as concerned as Ms. Estrin about the alleged innovation gap. My experience is that creative people come up with ideas all the time — they can’t help themselves. True entrepreneurs are risk takers, but the best entrepreneurs also have good business sense. It was the lack of business sense that caused the dom.com failures. I do agree that governments should be generating friendly business environments. It should be businesses that create jobs not governments. Governments can help, of course, but large numbers of public sector jobs generally characterize a failing state not a robust one. Even a business friendly government, however, can’t force people to take risks — and that seems to be the subject upon which Miller finally focuses.

“Some thinkers on innovation agree with Ms. Estrin’s assessment. ‘There is a remarkable telescoping in of vision and an unwillingness to make long-term bets,’ said Vinton G. Cerf, the chief Internet evangelist at Google. Mr. Cerf led the development of the networking protocols that form the basic architecture of the Internet, a project to which Ms. Estrin contributed as a graduate student. He points to the Internet as an example of the need for long-term research and financing, since development of the technology used to transmit data online required two decades of government support. Robert Compton, a venture capitalist and entrepreneur, said that the United States is losing its innovation edge to China and India. Chinese and Indian children are required to take more science courses than students in the United States, said Mr. Compton, who recently produced a documentary comparing high school education in the three countries. Of college graduates, 30 percent to 45 percent in India and China have engineering degrees, compared with 5 percent in the United States. Venture financing and patent applications are falling in Europe and the United States and rising in China and India, he said. Most alarming to Mr. Compton is that 60 percent of engineering doctorates from American universities are granted to foreign nationals, but they are no longer staying here to work. ‘The American economy is not as exciting as China and India, and a lot of them are going back home,’ he said.”

It seems to me that what these pundits are really arguing for is basic research and development, not innovation per se. I agree with them that we need to reinvigorate America’s educational system and find a way to excite a new generation about science and technology [see my post Speaking in Numbers]. I’m not convinced, however, that the entrepreneurial spir
it that built America deserves a eulogy.

“Ms. Estrin and others acknowledge that the recent surge in financing for alternative energy companies is a sign that innovation is alive and well in some sectors. Still, she is concerned that investors will not have the patience to build these companies. ‘If they treat these companies the same way they treated others — a couple years in, they need to see returns or cut the burn rate or start cutting people — they are not going to get to where we need to go,’ she said. Some who track innovation in the United States say the alarm bells are unnecessary and sound like a repeat of similar fears in past decades that turned out to be unfounded. A June study from the RAND Corporation found that 40 percent of the world’s spending on scientific research and development comes from the United States. The country employs 70 percent of the world’s Nobel Prize winners and is home to 75 percent of the top 40 universities. ‘The United States is still the world leader in science and technology,’ said the study’s co-author, James Hosek. But Ms. Estrin said that the technologies at the root of new products like Apple’s iPod or the Facebook social networking service were actually developed several decades ago. If a new round of fundamental innovation isn’t seeded now, the country will suffer in the next decade. She compared the situation to a tree that appears to be growing well, but whose roots are rotting underground.”

In his acceptance speech at the Republican National Convention, John McCain called education the civil rights issue of this century. Most analysts agree that the nations that provide the best education for their children and young adults will have the best chance of prospering in the future. Many countries, however, educate and test in ways that do not emphasize and reward critical thinking. One of the reasons that American universities remain the best in the world is that critical thinking is at the heart of higher education. We need to stress those same kinds of critical thinking skills in elementary and secondary schools. Students that learn to think critically also learn to think innovatively. Complement that approach with programs that interest students in science, math, and technology and you have a winning formula for securing our children’s future.