by Andrew White | October 9, 2017 | Comments Off on The Economist this week: On Start-ups, disruption, and the cost of a new ideas
There were some interesting articles in this week’s Economist (Sept 30-Oct 6) that warranted special attention.
The article first sets the stage by informing the reader of the sorry state of affairs related to start-ups. Nationally that number of start-ups has been declining for some time, so creative destruction and rebirth of new, innovative firms is lacking. This, so the theory goes, is a drag in growth and productivity. However new information from the World Economic Forum suggests that American competitiveness is improving. In its annual ranking of global competitiveness America moved up the charts from third to second.
The good news is that, according to another new report, young high-growth companies (or gazelles) are growing in number. The report is from the Kauffman Foundation who study entrepreneurship. What is even more interesting is where these gazelles are appearing. The examples shared in the article highlight new innovative uses and sharing of information such as healthcare credentials and insurance. Physically some of these gazelles are found not in Silicon Valley or Boston but Nashville and Columbus. All very heartening.
The article discusses an apparent inconsistency. Many business leaders suggest that disruption is going rampant and many firms will be challenges, yet those same leases claim their businesses are doing well. So who will suffer?
The argument is that digital will trump analog or conventional firms. An analysis by the Economist suggests that firms disrupted recently account for a very small per cent of the S&P 500 profits. So digital disruption is not having much affect: “profits are high and stable relative to GDP”.
The article does not come to any insightful conclusion. The article also does not link the challenge to the fact that industry concentration of large firms is at all time highs. And the previous article I noted above start-ups are at all time lows bar some new growth only now being observed. So maybe this ‘disruption’ we talk about is a lot less disruptive than we expect. Perhaps disruption is just the new normal, so we don’t even notice it.
This fascinating article explores some new data that might describe more fully an old problem. Are we running out of big, new idea? There are lots of pointers that suggest innovation is tapering out. The big innovations of the past, such as electricity, combustion engine, antibiotics, and computers, are just not being emulated with today’s batch of inventions. This idea that all the big ideas have been thought up helps some explain the lack luster growth in productivity and GDP.
New research is cited that seems to suggest that the cost of each new breakthrough idea is going up. This is an intriguing thought. It seems to give credence to the reason why new ideas are falling in number. But as an IT analyst I have to say that invention and innovation is rife; but I wonder if we are guided to invent the right things. And this is where the article moves next.
The article suggests that policy and investment influences behavior, and that perhaps our behavior has therefore changed. We are lacking the triggers to drive growth-inducing innovation. Lastly the article closes with an astounding point: “The accumulation of knowledge is in some ways a burden. The More is known, the More researchers must absorb before they can add to the stock of human knowledge – or the more they need to collaborate with other researchers to combine their areas of expertise.” Of course after reading this you conclude this is self evident. But diffusion and usability of knowledge in an economy is also tied to how growth and productivity develop.
I see this in my own line of work. I see organizations invest in technology as if it was an answer to a challenge. Some time later, even years later, after a failed implementation that same firm then seeks knowledge to ‘try again’. Eventually they succeed. So the diffusion of knowledge across an economy or industry is slow and real. And IT types are not always aware of this gap in their thinking. More work for us all.
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