Harvard historian Jill Lepore says the “gospel” of disruptive innovation, made famous by her Harvard colleague Clayton Christensen, is wrong. Worse, she wrote earlier this summer in the New Yorker (0), the very “idea of innovation is the idea of progress stripped of the aspirations of the Enlightenment, scrubbed clean of the horrors of the twentieth century.” Who knew Professor Christensen’s studies of disk drives and steel rebar were so morally suspect?
Ms. Lepore’s skepticism is just the latest in a growing, multidimensional debate over the role of technology in the economy. George Mason economist Tyler Cowen gave us the “Great Stagnation,” venture capitalist Peter Thiel the technological plateau, and Northwestern economist Robert Gordon the “demise of U.S. economic growth.” They want more innovation but lament that we’ve harvested all the “low-hanging fruit” and — mixed metaphor alert — face at least six “headwinds.”
MIT’s Erik Brynjolfsson and Andrew McAfee, authors of “The Second Machine Age,” say just the opposite — that technology is actually moving too fast for the workforce to keep up. Then there is the so called tech-lash (in which Bay Area residents protest the rising wealth and general elitism of Silicon Valley tech firms) and a predictable resurgence of robot-phobia.
The American stance toward technology and entrepreneurial disruption is crucial. These are the sources of economic growth, and slow growth is at the heart of most of today’s economic and social problems, including the startling decline in male employment.
Mr. Thiel acknowledges information technology is the outlier in his otherwise dismal outlook. By my estimates (1), 20 years ago today’s iPhone would have cost more than $3 million, and soon it will cost just $30. We are closing in on two billion global smartphone users and 200 billion downloads of mobile apps. We may roll our eyes at the runaway valuations of some recent tech deals. Yet none of our metrics of the vast digital world adequately conveys the massive consumer surpluses it generates.
We are also on the cusp of new eras in information-based molecular medicine, graphene-based materials science, and self-driving vehicles. The supposed U.S. energy shortfall has (as many predicted) turned to bounty.
Yet all is not well with the U.S. innovation machine, and Ms. Lepore unintentionally helps expose the problem.
“Public schools, colleges and universities . . . and many hospitals,” she writes, seeking a rationale to shield them from competition, “have revenues and expenses and infrastructures, but they aren’t industries in the same way that manufacturers of hard-disk drives or truck engines or drygoods are industries. Journalism isn’t an industry in that sense, either.”
No doubt journalism has been disrupted, for the better. Education and health care, however, have seen far too little disruption. Government protections of these two large American industries have made them two of our least productive.
Lepore even thinks the founding fathers disliked disruption. “George Washington, on his deathbed,” she writes, “was said to have uttered these words: ‘Beware of innovation in politics.’”
Now, there was a smart man. The point of the American system is to limit innovation in politics in order to encourage innovation in technology, business, art, and culture. Lepore seems not to get the distinction.
There’s been a lot of talk about uncertainty hurting the economy, which is true as far as it goes. But in an even more important sense, there’s been too little uncertainty in the economy. Wealth is essentially knowledge, and as the physicist and philosopher of science David Deutsch writes, “The unpredictability of future knowledge is a necessary condition for the unlimited growth of that knowledge.” Hyper-regulation and heavy taxes cement in place the existing order and discourage the experiments and entrepreneurial ventures — the disruptions — that are so central to generating new knowledge and economic growth. Meanwhile, crony collectivism delivers certain returns to the politically favored.
Christensen himself has a new theory of slowed innovation and growth. In a May article, “The Capitalist’s Dilemma,” (2)he argues that in a world of abundant capital, businesses are wrongly obsessed with capital efficiency. They are in thrall to asset ratios — RONA, ROIC, IRR, etc. Instead, they should freely deploy plentiful capital and focus less on financial engineering and more on big ideas and innovative products. He thinks this short-sighted financial engineering may be good for today’s profits but not for jobs and incomes.
Christensen’s framework, if true, could support the thesis of Messrs. Thiel and Cowen that we’ve not been producing nearly the number of breakthrough technologies and innovations as in the past.
But why? Perhaps America’s tax, regulatory, and monetary regimes have created this risk-averse environment in which rigid capital ratios came to dominate. In other words, the constraints imposed by the world’s highest corporate tax rate, increasing market intrusions, easy money (for big firms), and crony collectivism have reduced the space, or degrees of freedom, needed to make longer term bets on uncertain products and markets. In such an environment, managers predictably default to the “scientific” management of assets rather than the “art” of innovation.
The Food and Drug Administration’s harassment of 23andMe, local efforts to block Uber’s challenge to taxis, and a host of energy rules — tourniquets for some, subsidies for others — exemplify our anti-disruption stance. Mr. Thiel especially recognizes the damping effects of industrial policy posing as “science.”
I may not fully agree with Mr. Thiel’s dim view of recent technological progress. But his war on complacency is a vital service. This is the real source of American optimism — not blind sanguinity, but the constant desire to improve.
One of the worst anti-innovation efforts is being fought out at the Federal Communications Commission, where extremist proponents of net neutrality are pushing the agency to apply the old “Title II” monopoly telephone regulations to the digital world. The new effort to regulate the Internet as a public utility would overturn the wildly successful, bipartisan, unregulated approach of the last several decades.
The U.S. invests more than anyone in broadband networks, cell towers, and data centers, and it generates and consumes twice as much Internet traffic per Internet user as Japan and three times that of Western Europe. Most of the world’s biggest Internet firms are American, and we’ve got most of the new upstarts, too, precisely because we’ve encouraged disruption in this sector. One could hardly devise a more devastating blow to innovation than allowing Washington to wrap its regulatory arms around the Net.
To reignite economic growth, we need a broad commitment to an open economy and robust entrepreneurship. Will Oremus of Slate pithily summed up Ms. Lepore’s argument, and the argument we all need to resist: “Disruption is a myth, and please stop doing it to my industry.”