innovation

What if innovation is a myth?

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Brice Couturier, journalist and columnist for France Culture, gave his advice to the new President of the Republic, Emmanuel Macron., recommends today in the France Culture newsletter the works of economists who warn against the drying up of innovation and its contrasting effects on growth. UP' relays this message here.
 
Monsieur le Président de la République, in your book Révolution, you write: "Today, France must not miss the shift towards innovation and the digitization of its economy. "And you praise the entrepreneurial model of the startup, "the seeds, I quote, of an economic transformation and cultural change. »
 
The intellectual world today is divided between techno-optimists and techno-pessimists. A book, published last year, "Is US Economic Growth Over? », contributed to the skepticism of the former. It is the work of an American specialist in economic history, Robert J. Gordon. He believes that the great innovations that stimulated the world economy between 1870 and 1970 - electricity, cars, airplanes, radio, television, computers - are behind us. Our economies are said to have reached a "technological plateau," he says. This is why growth has been so sluggish for several decades in both the United States and Europe. Gordon does not deny that there are still interesting innovations today. But he believes that they will have a much smaller impact on economic growth in the future than those produced in the past by the internal combustion engine or electricity.

Productivity at half-mast

For his part, the Turkish-American economist Dani Rodrik believes that innovation now has only a small impact on labour productivity. This is because the sectors of activity affected by the digital revolution, in particular, are marginal: the vast majority of our spending is devoted to health, housing, education and transport - activities that are little affected by major technological advances, such as artificial intelligence, automation or digitisation. Of course, sectors such as information and communication technologies are strongly affected. But their relative importance in a modern economy is too small to weigh. Moreover, according to Rodrik, the extra growth created by digitisation and robotics will not be enough to compensate for the shift of low-skilled workers from traditional industry to services with low productivity and lower wages.
 
Two Swedish economists, Frederik Erixon and Björn Weigel, have just published a book entitled The Illusion of Innovation, which I particularly recommend for your reading. They show how and why innovation has tended to slow down in recent times. What we should fear, they write, is not so much being pushed by technical progress, but rather seeing it stifled. This is primarily due to changes in the nature of capitalism. Far from being the "revolutionary" force of creative destruction that Schumpeter described before the war, it has become risk-averse and timid. It does not renew itself. In Sweden, of the 50 largest companies, 30 were founded before the outbreak of the First World War and the other 20 before 1970 .

"Grey-haired Capitalism"

Why? Because capital is now in the hands of pension funds and sovereign wealth funds that hate risk-taking above all else. And for good reason, they are intended to finance pensions. This "grey-haired capitalism" wants secure and immediate returns. It favours neither long-term investments nor research and development.
 
Globalization initially created competition for innovation, but it has led to such a level of specialization of countries in the value chain that it has become very difficult and costly for new entrants to enter the value chain.
 
Finally, and here you can do something about it, Mr President, regulatory mania discourages new entrants. Often, these standards are adopted under pressure from the large companies to which they are well suited, in order to prevent competition from start-ups. The precautionary principle is used, in many cases, as a brake on innovation. If our ancestors had known this, they would never have let automobiles be built. Much less airplanes...
 
Brice Couturier, France Culture - 17 May 2017
 

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