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The U.S. Is A Failure At Innovation.

Posted by: Bruce Nussbaum on March 11, 2009

Got your attention? Good, because the statement is mostly TRUE. Mike Mandel, the chief economist at Business Week, presented a paper recently to the Massachusetts Technology Leadership Council on “Innovation and the Financial Crisis.” The conclusions are astonishing and worrisome.

Here they are:

‘“Looking back, the Internet Decade (1997-2007) was much weaker than we realized;

There was a technology shortfall—The Internet alone is not enough.
Our existing technology and business-know flowed to the developing world. We did not create sufficient new products and services to pay for imports. Dependence on financial innovation instead of real innovation;

Real wage gains were nonexistent (and paltry for college grads);

Real stock market gains were nonexistent;

Leading tech sectors struggled—
Weak performance of infotech stocks
Weak performance of pharma stocks
Mediocre performance of biotech stocks;

Since 1997, infotech and pharma stocks are flat, after adjusting for inflation;

The result? Financial crisis = Adjusting to a world with slower expected innovation. $4 trillion in excess debt goes bad and needs to be written down. Nationalization of banks, repudiation of debt.
Collapse of trade bubble;

How long will the crisis last? Without innovation, it’s a slow slog. It takes a long time to dig ourselves out of a $4 trillion hole just through savings. Consumer demand will stay soft for years.
That’s why economists are increasingly gloomy;

Innovation is the wild card. It can surprise on the upside, as well as the downside. New products and services boost both demand and supply. Innovation creates jobs, spurs growth;

What are the odds? Innovation is fundamentally unpredictable, but some areas are more mature.
Infotech: Ripe; communications, social media, cloud computing, news/entertainment.
Biotech—Ripe; more than 25 years since the first biotech drug.
Energy—still lagging.

The Outlook? I’m going to go with medium-term optimism.
Over the next year, the economy will be sustained by education, healthcare, and other government programs. Over 3-5 years we will see innovation-driven growth. I would not be surprised to see another BOOM."

Wow. Go Mike.

OK. What do you think of his analysis? It sure blows away a lot of mythology about America's prowess in technology and innovation. And it shows how important innovation will be to future economic growth and prosperity. Anybody in Washington getting this?

Reader Comments


March 11, 2009 6:34 PM

Bottom line is, 2.0 is not about technology, it's about capitalizing on these failures. Blue Ocean Strategy is a classic example of this -- optimizing for specific scenarios -- capitalizing on the long tail.

It's the transition from Financially driven decisions to Economically driven ones (how many businesses have CEcon roles?). And we're not talking financial economics, we're talking Heynesian economics: capitalizing on human behaviors.


March 11, 2009 9:21 PM

So, let me get this straight:

"the internet alone was not enough"


Social media, communications and cloud computing are going to save us.

Um, all of those rely on the innovations made in THE INTERNET during his lost decade.

I'm all for gloom and doom during a recession, but gee whiz, the the past ten years were not without very important innovation, most of which happened within these borders. Don't tread on me.


March 12, 2009 4:41 PM

Great title, but wrong. See here:

And there is plenty of recognition of the need for design driven innovation:

More importantly Mike Mandel's analysis points to a very important fact for growth and competitiveness - its that we cannot depend on innovation in one or two sectors alone to drive recovery - its going to have to be across the board, including infrastructure, energy, and other areas in which nations typically lag.

Carl Frappaolo

March 13, 2009 1:49 PM

OK, yeah the economy is in the dumps - globally - not just US, and of by the way, it may have something to do with a unnecessary war, greed, financial mismanagement. Blame technology and innovation. The internet was not enough? And then to site social media and cloud computing as a source of potential? Sorry I am confused by this opinion. Many companies, including American companies have leveraged the internet in VERY INNOVATIVE ways to create economic growth. Not their fault to many others worked against that. Look at my favorite "simple" example APPLE and the iphone and iTunes.

Mark P

March 15, 2009 7:22 PM


Ford and GM have products in non-US markets with superior fuel economy, yet they cannot find a way to market those products here...

Consumer Electronics companies showed so-called "green" products at CES, but we continue to waste gigawatts due to dumb power supplies, we race adopt new products that may or may not be more efficient than current-gen products (plasma TVs, anyone?) - Meanwhile CEA rigorously opposes any sort of regulation or benchmarking.

We can go category by category and identify inefficient production methods, toxic materials, and poorly conceived product lifecycle management.

The fact is that growth (revenue, profit, VOLUME) is not indefinitely sustainable. Companies, Nations, and indeed our Cultures will learn soon enough.

Innovation must deliver stability and sustainability for the global population. This is no longer merely a commercial/trade question...


March 17, 2009 6:02 AM

Until someone can actually measure "number of innovations, per year" with accuracy, I don't believe a thing that you are saying.

The US may be a failure at innovation. Of it course it might be quite capable at innovating. Who innovated and brought mortgage-backed securities into the limelight? That's right the USA. 14% of GDP was 'financial services'. There had to be some kind of innovative financial products to make that happen, even if those products didn't actually work. Innovation could have good or bad economic effects, but your insistence on using the term in a wholly positive flaws your analysis.

So absent a measurement of "innovation", I remain skeptical.


March 19, 2009 5:31 PM

You see, innovation is one of those funny things that I don't think breaks down clearly by national boundaries. If we're talking about national growth, then according to Solow's growth model, you're right to say that savings won't result in a increase in the slope of a nation's growth curve, but it will result in a unit shift upwards. Still, the "black box" of innovation, or more broadly "technology," is not the only thing that can result in a permanent upward shift in a country's growth curve. Human capital - the productivity of workers - also causes permanent upward shifts in growth. The problem is, when you say that the US fails in innovation, are you really saying the US government's policies aren't stimulating tech growth, US citizens aren't innovating, not enough innovation is taking place on US soil, or something else? In my mind, it's not such a black and white, zero sum game. The US still has the best universities in the world, the best human capital stocks, many of the most innovative companies, and many of the key hubs where innovation takes place. Nevertheless, even innovation elsewhere still improves technology elsewhere, driving global growth. The way out of this recession is not through fearing innovation elsewhere, but working toward global growth.


March 23, 2009 5:23 PM

There is currently an open design ideas competition that addresses exactly this problem, called, IMAGINING RECOVERY. The competition asks designers of all types to address innovation in recovery through design and imagery to challenge and augment the 'transparency' of initiatives like Information at


June 16, 2010 6:29 AM

интеретсно написано


June 16, 2010 6:32 AM

отлично написано, у автора прям талант

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Want to stop talking about innovation and learn how to make it work for you? Bruce Nussbaum takes you deep into the latest thinking about innovation and design with daily scoops, provocative perspectives and case studies. Nussbaum is at the center of a global conversation on the growing discipline of innovation and the deepening field of design thinking. Read him to discover what social networking works—and what doesn’t. Discover where service innovation is going and how experience design is shaping up. Learn which schools are graduating the most creative talent and which consulting firms are the hottest. And get his take on what the smartest companies are doing in the U.S., Asia and Europe, far ahead of the pack.

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