A post today by famed economist, Michael Mandel, highlights poor innovation on the part of US businesses as a major factor in the economic crisis.
Mr. Mandel’s post is based on findings from an NSF (National Science Foundation) report, which finds only about 9% of surveyed firm created innovative products or processes between 2006 and 2008 — its important to note this is the period immediately preceding the economic crisis so the collapse of capital markets, declining sales, and poor funding sources could explain the low level of innovation.
Although not directly responsible for the financial meltdown, lack of innovation appears to have at least compounded an otherwise difficult situation and, according to some, to be a significant symptom of a more generalized problem resulting in this crisis.
But innovation is not enough. Innovative ideas must meet current consumer needs at an affordable price and they must be commercialized effectively. Mandel (2009) believes it is not the lack of innovative ideas, but their poor commercialization that has stymied the economy.
For instance, a company developed a process for creating living tissue needed by burn patients. The tissue cost more to grow and ship than patients could pay. Only after being acquired by another firm that controlled costs could the company and its product survive.
We hear the same chord from industry associations and think tanks. For instance the Conference Board states: “We hear it daily across the global business community: The only way out of this crisis is to innovate our way out… it [innovation] should be front and center in strategic planning at all levels of companies and economies.” (AP 2009). This is echoed by the National Science Board (2008), which highlights the role of innovation in creating strategic competitive advantage and improving the lives of consumers and their governments. Since innovation spurs job growth, it is especially critical in an economy saddled with stubborn, double-digit unemployment rates that defy efforts to improve them, including a trillion dollar stimulus plan invested by the US government and similar expenditures by much of the industrialized world.
Associated Press Financial Newswire. Innovation crucial to recovery and U.S. competitiveness 2009; May 7.
Mandel, M. The failed promise of innovation in the U.S. Businessweek 2009; June 3:26-34.
National Science Board. Research and development essentials foundation for U.S. competitiveness in a global economy 2009; Retrieved on October, 26, 2009 from http://www.nsf.gov/statistics/nsb0803/start.htm.