Do we really run out of good ideas?

Here’s a quote from John K. Galbraith’s 1952 book American Capitalism: The Concept of Countervailing Power

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The idea that we slowly run out of good ideas and, thus, innovation becomes harder and more expensive over time is very much en vogue again these days.

  • Bloom, Jones, Van Reenen and Webb released a working paper this year with the title “Are Ideas Getting Harder To Find?”. They provide evidence from case studies and empirical estimates showing that R&D productivity in the private economy is declining, which has a negative effect on economic growth rates.
  • I have argued here and here that a decline in research productivity could be a reason for increasing productivity differences within industries and the rise of superstar firms.
  • In his book “The Rise and Fall of American Growth” Northwestern University economist Robert J. Gordon doubts whether the fast pace of economic and technical change that we saw between 1870 and 1970 will be reached again any time soon.
  • In “The Great Stagnation”, Tyler Cowen develops the hypothesis that we already picked all low-hanging fruits when it comes to science and innovation. Increasing our living standards, at the rates we’re used to, will therefore become harder and harder in the future.

Galbraith’s pessimistic assertion should give us a reason to be modest though. Looking back, the 1950s appear to be a time of great innovativeness and economic growth, in which plethora of useful inventions were ripe for harvest. Also today, (as usually in economics) we should be careful with extrapolating current trends too far into the future.

The theory of long waves assumes that technological change takes place in very long (45 to 60 years), business-cycle like, wavy patterns, and therefore predicts that growth rates will accelerate again at some point. Although it largely fell out of favor among academic economists, I wouldn’t discount the possibility that the next general purpose technology, which will revitalize economic growth rates for years to come, might be just around the corner.

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What’s Innovation Economics All About?

Preface: On Wednesday I successfully defended my dissertation and am now the proud holder of PhD in business economics from KU Leuven. In this post I would like to share the opening chapter of my thesis (title: “Three Essays on Innovation Economics”) with you. It’s a bit longer than what I usually put on this blog. But I think it’s worth a look nevertheless. I don’t only give a brief, non-technical introduction into my work but also go into what fascinates me about innovation economics—a field which still lacks the recognition it deserves in mainstream economics. Continue reading What’s Innovation Economics All About?

Innovation on (government) demand?

Next week we will organize the 7th ZEW/MaCCI Conference on the Economics of Innovation and Patenting in Mannheim and the program will be great. We will have Bronwyn Hall from Berkeley and Pierre Azoulay from MIT as keynote speakers. I’m definitely looking forward to hear them speak.

Myself, I will present a new project on the relationship between public procurement and innovation. In brief the research question is the following. Continue reading Innovation on (government) demand?

Cardwell’s Law

While reading Joel Mokyr’s newest book I came across an older paper of him, which I found very interesting. It is about what Mokyr calls Cardwell’s law*— the empirical regularity that “most societies that have been technologically creative have been so for relatively short periods”. Throughout economic history successful countries in terms of innovation and economic growth have usually lost their competitive edge pretty soon again and were overtaken by others. Continue reading Cardwell’s Law

Do Most Companies Even Try to Innovate Anymore?

This post first appeared on hbr.org (Harvard Business Review, 14 April 2017).

We are living in the age of the superstar firm. Companies like Samsung, Google, or BMW—the top players in their respective industries—are prospering. Yet economic growth remains sluggish in many parts of the world. The reason for that paradox, as the OECD has warned, is that the productivity gap between firms at the global frontier and those lagging behind has widened. Continue reading Do Most Companies Even Try to Innovate Anymore?

Innovation activity in Germany is becoming more concentrated

This is an English translation of a column I published together with my colleague Christian Rammer from ZEW on oekonomenstimme.org. A pdf version can be downloaded here.

For years investments in research and development (R&D) have shown a rising trend in Germany. In 2015 they have reached a record high of 157.4 billion euro. At the same time, however, R&D expenditures are becoming concentrated within a smaller number of actors. The share of companies that invest in innovation falls steadily. As a result, innovation activities in the economy are more unevenly distributed. This column discusses possible causes for this development. Continue reading Innovation activity in Germany is becoming more concentrated