Government, innovation and the great recession

The Great Recession is now in its fourth year, with little sign of letting up. An economic downturn as profound and protracted as this one necessarily impacts the world of innovation. When there is less money to be spent all around, there is less money to be spent on innovation. On the other hand, innovation, and the booms that come along with it, might be just the ticket out of the world’s current economic woes -- or perhaps just another dead end in uncertain times.

One way that a recession drives innovation is by putting a downward pressure on prices. While companies always want to find innovations that lower production costs, the question becomes much more sharply posed during times of economic contraction. Indeed, at a time when investment capital is tight and difficult to come by, companies have little choice but to turn the innovation impulse inward and look for ways to streamline production, development and distribution.

Such innovations do more than benefit the manufacturer and consumer. They can also have broad-ranging benefits for the whole of society. Take, for example, recent attempts by Xerox to save money by saving paper. As Xerox is one of the leading names in business machinery, their cost-cutting initiative can’t help but have far-reaching effects on all sectors of the economy. There is scarcely a business anywhere in the world without Xerox products or -- forgive the wording -- copies thereof. Further, such belt-tightening innovations can become ready-made projects for times when the market is awash with cash.

Curiously, innovative technologies still increase market penetration during recession. Even during the Great Depression, the rate of radio market penetration increased steadily over time. The current Great Recession has not significantly slowed the pace of smartphone and tablet market penetration. Indeed, mobile Internet penetration closely mirrors that of television, the latter of which rose to prominence during one of the most expansive periods of American capitalism. Tablets took off faster than smartphones, which took off faster than MP3 players.
But is “market penetration” truly a significant factor in repairing a badly damaged economy? While media and info junkies might laud the expansion of such technologies, they are less significant when compared to other past forms of innovation. The United States currently has nothing on the scale of railroads, highways or massive infrastructure projects driving the economy as it has in past decades. While a “Manhattan Project for Green Energy” gets occasional lip service, Americans are still driving gas guzzlers to work and mostly doing without light rail, an innovation that Europeans and many Asians take for granted. While mobile technology is certainly making changes in American society and the world, these changes can hardly be said to be as fundamental as the automobile, the refrigerator or the washing machine.

That innovation could save the world economy seems clear. However, there’s an equally clear lack of political will to invest in innovation, particularly in the United States. It’s worth noting that while “big government” is a sort of national demon in the states, some of the most important innovations of the last 100 years, notably the Internet and the Interstate Highway System, have had, at the very least, a huge assist from the government. One can certainly make the argument from a non-consequentialist perspective that it’s not proper for the government to invest in the economy or try and direct large-scale public works projects. Arguing that such investments “don’t work” or somehow stymie innovation is quite far-fetched indeed.