Growth Theory, R&D, and Innovation

My last several posts have all tiptoed around the topic of growth economics. Today I’ll try address it head on. But first a disclaimer: I am not an economist and I’ve never taken an economics class in my life. If you can offer a better description of growth theory, correct any mistakes that I make, or suggest some good links, articles or books, please use the comments section to do so.

Economic growth theory holds that booms happen as a result of innovation and the introduction of new technologies. As much as 50 percent of industrialized countries’ GDPs and 75 percent of productivity growth can be attributed to these innovations. Historic examples are railroads and steamships, and more recently semiconductor capacity and the Internet. Traditionally the place where the innovation occurred benefits the most. Here’s an article that goes into some more background, but be forewarned that it makes the Sahara look like a rainforest.

Growth theory and our ability to keep innovation in the U.S. seems to be where the discussion in the IBM/Lenovo thread is headed. The just released Bush budget adds some fuel to the fire. It’s basically bad news for R&D. The proposed spending doesn’t keep up with inflation and the research budget (the “R”, which is the foundation for future innovation) actually decreases in real dollars. Lastly, the results are in from a poll I worked on with the CIO executive council, and it shows that CIOs realize that the government’s approach to technology is in shambles. The full results are here and here’s a link to a rather long summary of the findings.

In my opinion, the biggest shocker in the survey is that more CIOs think that the U.S. will not be the world’s innovation leader in 15 years than think we will be. I can’t say that I agree with them – 15 years isn’t that far from now – but I think that the trend is clearly headed in that direction. I have a feature story coming out in April that looks at the current innovation ecosystem in the U.S., what countries like China are doing, and makes some suggestions for things that our government could to help (no, they do not involve copying China in anyway). That’s still a couple months away though, so in the meantime let’s keep the conversation going.