Got your attention? Good, because the statement is mostly TRUE. Mike Mandel, the chief economist at Business Week, presented a paper recently to the Massachusetts Technology Leadership Council on “Innovation and the Financial Crisis.” The conclusions are astonishing and worrisome.
Here they are:
‘“Looking back, the Internet Decade (1997-2007) was much weaker than we realized;
There was a technology shortfall—The Internet alone is not enough.
Our existing technology and business-know flowed to the developing world. We did not create sufficient new products and services to pay for imports. Dependence on financial innovation instead of real innovation;
Real wage gains were nonexistent (and paltry for college grads);
Real stock market gains were nonexistent;
Leading tech sectors struggled—
Weak performance of infotech stocks
Weak performance of pharma stocks
Mediocre performance of biotech stocks;
Since 1997, infotech and pharma stocks are flat, after adjusting for inflation;
The result? Financial crisis = Adjusting to a world with slower expected innovation. $4 trillion in excess debt goes bad and needs to be written down. Nationalization of banks, repudiation of debt.
Collapse of trade bubble;
How long will the crisis last? Without innovation, it’s a slow slog. It takes a long time to dig ourselves out of a $4 trillion hole just through savings. Consumer demand will stay soft for years.
That’s why economists are increasingly gloomy;
Innovation is the wild card. It can surprise on the upside, as well as the downside. New products and services boost both demand and supply. Innovation creates jobs, spurs growth;
What are the odds? Innovation is fundamentally unpredictable, but some areas are more mature.
Infotech: Ripe; communications, social media, cloud computing, news/entertainment.
Biotech—Ripe; more than 25 years since the first biotech drug.
The Outlook? I’m going to go with medium-term optimism.
Over the next year, the economy will be sustained by education, healthcare, and other government programs. Over 3-5 years we will see innovation-driven growth. I would not be surprised to see another BOOM."
Wow. Go Mike.
OK. What do you think of his analysis? It sure blows away a lot of mythology about America's prowess in technology and innovation. And it shows how important innovation will be to future economic growth and prosperity. Anybody in Washington getting this?