The decline in American Innovation coincides with Big Business's decline in research.

Big Business stopped focusing on innovation because it no longer "had" to.

Photo by Aleksandar Pasaric from Pexels


America isn’t as innovative as it used to be

While it still produces far more scientific research than every other country in the world, this hasn’t shown up in economic growth.

In short, there’s a gap between research discoveries and the implementation of said research.

This realization dawned upon me as I realized America’s failure to innovate during the pandemic. I’ve been wanting to know why since the pandemic began.

In a working paper by Arora et. al, they make the argument that America’s failure to produce productive innovations may be due to the fact that Big Business has pulled out of research and has outsourced research to universities and start-ups.

The problem with this?

A lot of research may be purposeless.

A Brief History of American innovation

Prior to World War II, a lot of inventions were done by individuals or smaller entities. However, shortly after, we would see an uptick in corporate research with some corporate research scientists even winning Nobel prizes.

According to the authors of the paper, up until the late nineteenth century:

American academia was considered backward. The main application of scientific knowledge was agriculture and the pursuit of more abstract natural phenomena was limited.

Bigger companies would usually hire individuals to do research on their behalf or buy their patents. Then Germany’s chemical industries hit gold with internal research, making firms like Bayer and AGFA the international giants we see today.

Technologies would become more complex, thereby making it more difficult to attain patents. This would result in several companies following the german research route. General Electric, for example, would establish the GE Research Laboratory(GERL) in 1900 with great success.

The subsequent growth of corporate research can be observed when looking at America’s chemical industry, the most scientifically grounded industry at the time. It would see 1102 scientists being employed by 1921 which would then grow exponentially into 14,066 by the end of the second world war.

By the late 1960s, Bell Labs and AT&T had 15,000 researchers employed of which 1200 had PhDs.

Meanwhile, America’s research universities were finally gaining prominence.

Initially, most research was localized and hence tailored to the specific needs of communities. Research universities are as such, a recent development according to the authors; one born of the belief that universities should be a place of intellectual exploration. This isn’t bad in itself. It has after all allowed us to expand the collective arsenal that is human knowledge. The problem is how much of it we’ve been able to process, which is increasingly, very little.

During the second world war, university research, and corporate ambitions had been so intertwined it created tensions. A prior pipeline had been established in which university researchers would leave their institutions to work on corporate-centered innovation. But these researchers would soon get fed up with the invasiveness of corporations in their research.

This would cause the subsequent split between mission-driven research and innovation, with universities specializing in research and businesses specializing in development.

This trend was further enmeshed as federal funding ensured that Universities would never have to rely on corporate funding. This in itself would not cause the decline of innovation. In fact, Big Businesses would continue to focus on internal scientific research until investors saw it unprofitable to do so. Therefore, they would outsource a lot of their research to universities and startups.

The reason why corporate research was so important initially was that anti-trust ensured that they couldn’t merely gobble up companies the way they do today. It forced them to innovate or die. And so innovations were general purpose and the research had broad scientific applications. The eventual decline of the Big corporate lab was due to a few public cases in which some companies (like Xerox) were incapable of capitalizing on the fruits of their success.

This didn’t mean other companies couldn’t. As such, due to increasing competition, investors put pressure on companies to abandon such research as it would give their competitors an edge.

Loosened anti-trust laws in the 70s meant they could easily acquire more downstream innovation-oriented organizations (start-ups).

The Innovation Scene today

Today, there are far fewer big companies engaging in innovative research with the exception of those in IT and Computing. Even there, Microsoft and Google account for 90% of publications among FAANMG companies in journals. Their successes have spurred innovation across multiple fields. Like the post-war mega-corps of their time, they also hire more from a diversified field of researchers, producing research of broad implications.

While a lot of innovation is sourced to VC-backed start-ups which have helped ease the problem their contributions are only evident in those fields I mentioned before (IT and Computing).

As the pandemic has taught us, we are in far more need of innovation in the life sciences, an area VC backed startups are ill-equipped to handle due to technical and commercial uncertainty.

It’s all about focus

It must be noted that it doesn’t mean that university oriented research is useless, as can be viewed from advances in molecular biology (CRISPR cas9 for example) or physics (quantum computing). But that far less of it addresses the wants and needs of the populace.

To address this the authors invoke the need for more mission-oriented organizations and entities, like DARPA and NIH, the former of which has given us the groundbreaking innovations of the internet and GPS.

While a lot of corporations are focusing on short term profits and are far less focused on deep innovation, DARPA bills itself as seeking radically transformative technologies.

The innovation environment today lends itself to entities who’s focus can’t be profit or sustenance, but radical innovations. In this, it becomes evident that the solution is an entrepreneurial state.

I’m honestly a bit taken aback.

I found the results of the working paper a bit stunning and a bit uneasy to deal with. I’m not one to give big business props for anything. But it does show that at one point in time Big Business was a force for good but merely due to strong anti-trust regulation. It also does validate Thiel’s hypothesis of monopoly as a worthy goal of a business; that maybe, perfect competition does indeed hinder innovation.

What I do not find surprising is its implications for the culture we have in tech today. Hype has overinflated the economic worth of technologies, undercut social progress, and convinced us all that incremental progress is a great path. The problem is that there’s a difference between getting 1% better and 0.00001% better. The latter is often a result of business margins, not thorough thought. It’s time to cut the crap. The world needs radical innovation.

Resources

Why the U.S. Innovation Ecosystem Is Slowing Down

The Changing Structure of American Innovation

The Entrepreneurial State


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