In the era of Google and Facebook, how much macroeconomic impact has the digital revolution really had? Not much, says the Wall Street Journal in Beyond the Internet, Innovation struggles in its August 12, 2015 edition. The other day, I was discussing Edmund Phelps, a champion for “mass flourishing”. I feel this WSJ article confirms his view that something is missing from our Western economies and it’s holding us back from maximizing our full potential as economic participants. And the economy cannot be saved by the smart boys and girls of of Silicon Valley.
On the one hand, Google and other similar technology giants have changed the way we work and communicate. Facebook has revolutionized the way we interact with each other. On the other had, advances in technology have had little macroeconomic impact because our productivity is now in one of the slowest stretches since the end of WWII, according to this article. Despite all the hype going into the production of driverless cars, this has not turned out be a commercially viable business so far. Google’s decision to separate its profitable internet search engine business from its money-losing ventures (cars, drones, contact lenses) should serve as a warning that the macroeconomic picture is not pretty in spite of the hoopla over the latest creations by Google.
Moving to the biomedical research front, the billions of dollars invested in research has not yielded giant breakthroughs comparable to those of antibiotics back in the first few decades of the 20th century. The world celebrated the completion of the human genome project, but as of 2015, more than a decade later, the Wall Street article laments that there is still no officially approved gene therapy for sale.
“Jetliners may carry passengers more safely and cheaply but don’t reach their destination faster. Boeing’s state-of-the-art 787 Dreamliner is no faster than the 707, which entered service in 1958. There’s no simple explanation for why innovative breakthroughs outside technology have been so elusive. One reason may be that industry must devote more of its innovative efforts to ensuring its products are safer and less environmentally harmful, which is good for society but doesn’t raise productivity. [I]n 2000, the Food and Drug Administration had 12 employees for every 1,000 in the industries it oversees; now, it has 18.”
Perhaps another explanation is that as “knowledge accumulates, truly transformative discoveries become harder. A 2012 article in Nature Reviews Drug Discovery found that the number of new drugs approved per $1 billion spent on research and development had halved roughly every nine years since 1950.”
There has been a lot of interest in innovation economics lately. Please see my posts on Edmund Phelps. Neither explanation above is satisfactory because I don’t believe human innovation has peaked. Is human ingenuity really relegated to tweaking a couple of apps on our tablets and smartphones? There is no doubt that digital technology has had a massive impact on our lives, but as some thoughtful commentators have pointed out, technology is really going down the path of entertainment. Think of Angry Birds, Candy Crush, iPods, iTVs and countless gadgets made by your favourite tech company and games made by many start-ups. Even in the traditional TV market, well-known brands such as Sony and Samsung are competing to see who can make bigger plasma TV screens or better resolution. To bring productivity back to our economy, perhaps the next generation of innovators should think beyond just entertainment or convenience (not that I am in anyway disrespecting the work of Apple and others). They could focus on revolutionizing medicine or coming up with a whole new way of doing business much as Microsoft did a couple of decades ago. As Phelps wrote, one way to get people to start thinking beyond the box is through the school system. How students are taught to think about the world at a young age will have an impact on their ability to create and build the society as adults.