by Mark Muller • 9/16/08 • Thanks to Business Week, I finally have a name to put on a topic that has been rattling around in my brain over the past several months – innovation economics. The September 11 issue of Business Week has a cover story called “Can America Invent Its Way Back.”
As I understand it, the concept is relatively simple and uncontroversial. “Ninety-five percent of economists agree that innovation is the most important thing for long-run growth,” says Daron Acemoglu of the Massachusetts Institute of Technology. Given that near unanimity, why haven’t we developed better methods of measuring innovation, and better policies for promoting it?
We know how to measure growth, and politicians and business leaders talk endlessly about promoting growth. But growth and innovation are not the same thing. Recent growth has been the result of consumption, not innovation. The rise in housing prices creates growth in the economy, but it does not necessarily mean that any innovation has occurred. A factory can develop a way of making a product more efficiently and therefore contribute to growth, but it doesn’t necessarily mean that the fundamental way of doing business has changed.
Innovation economics addresses the gap between spending and results. After all, spending billions of dollars on research and development does not guarantee that innovative technologies will emerge. The Business Week article points out that huge amounts of money have been spent on biotechnology and nanotechnology, but few breakthroughs have been commercialized.
Presidential debates on economics largely focus on things like tax policy, deficit spending and trade. These issues are of course important, but perhaps they should take a backseat to innovation policy. After all, if policies can foster a higher rate of innovation, many other fiscal problems vanish.
It’s intriguing to think of innovation economics in the context of the current concerns about rising food prices. I would argue that much of the agribusiness industry and federal agricultural R&D has abandoned innovation for efficiency. Here in the U.S. Midwest, we have spent the past 40 years developing an agricultural system based on corn and soybean production and feeding those commodities to feedlots and ethanol plants. Both public and private research tends to focus on efficiency – a couple more bushels of corn per acre, for example, or increasing the feed efficiency of livestock. Efficiency, after all, doesn’t cause turmoil in an industry like innovation sometimes does.
What about more integrated agricultural systems that can produce many, many more food calories per acre? Farmers around the world, such as Joel Salatin in Virginia, have developed extremely productive farming systems. Why do we leave that very important research to a smattering of underfunded farmers?
I wonder what would happen if USDA or some other agricultural entity took a fraction of their budget and created a food and agriculture prize that offered, say 10 annual awards of $100,000 each, to farmers for developing innovative on-farm production systems. My hunch is that we could do more for long-term agricultural productivity with such awards than the billions that have been spent to date on biotech corn.