It is an exciting time to be alive. Every year seems to bring a new, once unimaginable technology, that for better or worse, changes almost every aspect of our lives: How we communicate, transact, relate, and travel. While the last 200 years has been an unusually innovative period of human history for innovation, recent years have been exceptional.
Most of the time, innovation is how economies grow and it’s what makes our lives better. As a result, we’re enjoying extraordinary advances in our quality of life, standards of living, health, and longevity. But lately, the rapid pace of innovation threatens its future, by creating change faster than our ability to process it. That could slow, or even stall, the pace of innovation and enter us into what political scientist Ian Bremmer calls an “innovation winter.” If innovation slows, so will the economy and with it, the quality of our lives.
Why innovation matters
In a world with limited natural resources and countries facing shrinking populations, innovation is the only sure way to increase the standard of living. That can happen either through new, more economical ways to make existing products while using fewer resources, or it might mean new products.
If innovation slows, the next generation may not be any better off than we are today. Some economists think that’s inevitable; that despite recent advances, innovation is actually slowing and the last 200 years were an anomaly. Others believe its growth is naturally exponential, and we’re just getting started.
But even if innovation growth is poised to take off even further, we should be worried, because the future of innovation may be thwarted by mostly preventable forces. Here are a few:
Innovation is rarely an individual endeavor. Often, it’s a team effort where the best and brightest come together, share ideas, and test their hypotheses. Creators also need access to capital and a functioning market where they can sell their ideas. All of which is to say innovation is not a zero-sum endeavor, bound to happen wherever innovators happens to live. Bringing together talented innovators boosts the level of their creativity and the quality of their output.
Immigration facilitates this process.
In the last fifty years the US became a center of technology because many talented foreigners went there to study and remained after earning their degrees. Almost 40% of US Nobel Prize winners since 2000 were born elsewhere, and almost half of Fortune 500 founders were immigrants or the children of immigrants. Even foreign students who return home boost innovation by sharing their knowledge and connections abroad.
After years of steady growth, fewer foreign students are studying in the US and the UK. India and China, the home of many international students, are offering more compelling options at home. The threat of more restrictive immigration policies also makes staying after graduation less attractive or feasible. Both the US and UK are proposing laws to make it harder for high skill workers to bring their spouses and allow them to work. And in many western countries, increased anti-immigration rhetoric makes them a less welcome place to live, work, and build a family.
The coming data tech-lash
Future innovation is borne from sharing the latest ideas and data. An anti-technology backlash dubbed “tech-lash” threatens to undermine this process. European countries have cracked down on data sharing and collecting, due to privacy concerns. Brazil, India, and even California are considering similar measures.
While privacy is important, concerns need to be tempered with the benefits of data sharing. Data is critical to the discovery process—particularly for development of artificial intelligence technology. For instance, Google’s access to data from its multiple lines of business—like YouTube, Waze, and Gmail—helps the search engine anticipate what we are looking for.
Big data and access to it can also be life saving. It offers the possibility of improving medical research and with it the ability to identify existing and new diseases faster. Sharing data also helps researchers find treatments that can prolong and improve the quality of our lives. But this makes sharing our medical data a sensitive subject in a world increasingly distrustful of technology.
Data collection can also protect us from the more dangerous aspects of innovation. For example, data collection and sharing across borders is critical to identifying cyber threats and the latest hacker strategies.
Markets eating their own
Innovation is also threatened by a corporate landscape now dominated by bigger, older firms. There’s been a well-documented decline in business dynamism, or the rate in which firms are born, expand, contract, and fail. This leaves firms that are large, older, and often public to dominate the market and lead innovation. The changes in market structure resulting from technology (which favors firms with more data) and globalization (which favors firms who have the resources to grow rapidly) may mean bigger firms have an advantage. But the new market structure can ultimately undermine innovation if large firms don’t foster innovation, either internally or externally.
The risk is that public firms, beholden to shareholders who care mostly about share prices, will neglect investments in research and development that have many upfront costs, and can often take years, or sometimes decades, to pay off.
In theory, short-termism at big firms need not harm innovation. Small firms, which act as innovation labs, can be bought by larger firms with the resources to scale the new technology. Because companies need to be bigger to compete in the modern global economy, small, innovative firms are more likely to be acquired than grow into large firms themselves, says economist Jay Ritter. It’s become a common model in the biotech sector and it could be a workable model for innovation, in theory. But in practice, when small firms are bought up, their innovation can be prematurely killed before it reaches its full potential.
Technology today means our lives would be incomprehensible 20 or even 10 years ago. Innovation happens at such a fast pace that worries about an innovation winter may seem premature. But the pace is exactly why we should worry. When innovation grows too fast, it creates new market structures, and with it, winners and losers. This can foster an environment that generates backlash, eventually leading to policies that undermine future innovation. We may be reaching that point.