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The U.S. Is A Failure At Innovation.

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.

Energy—still lagging.

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?

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