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Economics bloggers don't think much of R&D as a catalyst for innovation

Posted by: Helen Walters on April 3, 2009

Last month, the Kauffman Foundation held a seminar bringing together some 40 economics bloggers from across the political and economic spectrum. Their goal: to discuss the state of the nation. Their findings, just released: contradictory. (According to this group, TARP will either “help prevent a depression” or cause “long-term structural damage”. Which I guess accurately reflects the conflicting opinions that seem to have paralyzed the powers-that-be but remains somewhat less than entirely useful.)

One thing they did agree upon, however, is that innovation is critical to the health of the American economy. Of course, you’re unlikely to find someone arguing against the discipline, but here’s the interesting part: when it comes to generating innovation, the group didn’t really rate the importance of R&D activities from any source, be that university, corporation or government. Given that R&D is widely held to be a common catalyst for innovation, I found that pretty surprising. So I called up event co-host and report co-author Bob Litan, VP of Research and Policy at the Kauffman Foundation, to ask him why.

"Regardless of their individual political complexions, they were a cynical bunch," Litan said. "And they were skeptical that innovation could come from either government or big institutions." Instead, Litan said, this group, which included BusinessWeek's own economics guru, Mike Mandel along with Economic Principles' David Warsh, University of Michigan professor and Carpe Diem blogger, Mark Perry and Infectious Greed editor Paul Kedrosky were putting their faith in brand new business and entrepreneurs. Now, Litan did admit that this could have been more a reflection of the venue (Kauffman is all about fostering entrepreneurship, after all) but he said that one lesson for government came through loud and clear: stay out of the way. "Make it easy to be in business and remove the red tape," said Litan.

For big business, there was a sobering analysis: that while large corporations may be good at driving incremental innovation, they're unlikely to foster the radical innovation called for in these uncertain times. Essentially, concluded Litan: "The group was saying it's the next generation Microsoft or Intel that will drive the economy, not the current Microsoft or Intel."

What do you think? Is it really nigh on impossible for large corporations to drive radical innovation? Yet how can individual entrepreneurs or small businesses drive the scale of innovation that's necessary for a country's full-scale reinvention?

Reader Comments

Michael F. Martin

April 3, 2009 2:00 PM

Only consumer internet entrepreneurs are going to get out of the gate with a new venture without the backing of institutional investors -- either universities or VCs. And the large companies are the customers for new technology so long as the IPO exit remains closed.

Americans are in love with the idea of the independent inventor and artist. But the other half of the picture is the collaboration and cooperation between that creator and the market that is necessary to bring new ideas to everyone.


April 4, 2009 9:48 PM

We ignore the facts and do large corporations a great disservice by claiming that they are capable only of incremental innovation. While it might be true that radical innovation is difficult for large corporations, there is a large gap between incremental and radical innovation. In this gap, you will find all manner of distinctive, important, value-creating innovation coming from many of our largest companies.

Jake Kaldenbaugh

April 7, 2009 12:55 PM

The idea that innovation is best suited to come from certain sources is flawed. Innovation is by definition a very creative activity and often the most creative perspectives come from sources outside of established organizations. Their differentiated backgrounds, causal assumptions and incentive systems are what will drive new solutions to established problems. Having worked in many large corporations, the power is always centralized in the hands of the existing economic flow generators. I don't think it's prudent to remove that power and speculate on new avenues considering the risk you would place on the existing business. Something about fiduciary duties and all that.


April 12, 2009 6:56 PM

Yet another article that uses the word innovation like a cudgel. Do you mean technology invention? adoption? Within the firm? In products produced by the firm?

Small and large firms could both be the source of productivity growth, but innovations often get implemented outside of firm structures. Apache does run a good number of servers and lowers the real costs of keeping up the internet. If you want a country-scale reinvention then maybe we should all use open-source Operating Systems and then firms can focus on customizing programs for particular applications.

So to answer your questions, the bloggers are probably right, large corporations probably are not in a great position to radically innovate (huge numbers of jobs are on the line), small firms may not even be the tool for "a country's full-scale reinvention".

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