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- Innovation appears to be slowing. The digital transformation that fueled much of the entrepreneurial boom over the past 50 years is maturing, with diminishing returns in areas like app development, raising concerns about the lack of new “big ideas.”
- The role of research and development, mostly driven by large corporations, universities, and government agencies, is critical in sustaining innovation, but questions remain about whether this model can keep producing breakthrough inventions.
- But the pandemic led to a surprising surge in new businesses, especially among women. And new artificial intelligence tools have shown potential to accelerate research and development, with AI sweeping the recent Nobel Prizes.
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In 1853, New Bedford was “probably the wealthiest place in the United States,” per the New York Times. Sixty miles south of Boston, the Massachusetts town had become the center of the world’s whaling industry, which dominated energy markets. Its then-15,000 residents had an average taxable income of $1 million in today’s money.
The town’s primary innovation came not in ships or sailing routes, but syndicated risk.
Earlier whaling families owned and operated their own boats, concentrating their gains and, if hit by pirates or storms, their risk. In New England, by contrast, wealthy investors rarely funded a single expedition.
Instead, they spread their capital across many assets, chipping in to a portfolio of ships, captains and crews who’d go out to sea for a few years and return with whatever they could. Some would sink, many would come home with a middling catch. A precious few would collect historic hauls — the legendary Milwood ship earned investors almost 60% returns in six months.
This is the cultural beginning of venture capital, as Harvard Business School professor Tom Nicholas has argued, most notably in his 2019 book VC: An American History. It also underpins the modern financial strategy of diversification.
Effective markets are so efficient, it’s difficult to outperform them in the long-run. Better to invest in low-cost indexes. That works at the grandest scale — even wealthy investors put just a tiny share into risky early-stage startups — and the narrowest: Venture capital firms and angel investors are advised to avoid putting too much capital into one business.
This enduring lesson of diversification depends on two obvious needs:
That there will always be a crew crazy enough to go out to sea for adventure and the chance at fabulous wealth. And that they will always know where to go to find the whales.
Who still wants to be an entrepreneur?
In 2019, both these assumptions were looking historically perilous: Americans had been starting fewer and fewer companies each year going back decades, and industries were becoming more consolidated, resulting in fewer big entrepreneurial wins. Then something spectacular happened during the pandemic: entrepreneurship surged, especially among women, and those elevated rates of business starts continue to this day. Investments in the 2010s for entrepreneurship-led economic development, including inclusive entrepreneurship, looked effective.
Americans were still crazy for entrepreneurial adventures. But could we run out of big innovations for them to pursue?
For most of the last 50 years, the metaphorical seas entrepreneurs sailed were dominated by the digital transformation era, in which successive generations of computerization, digitization, internet-connected, mobile-accessible and big data-backed processes were injected into big industries and far-flung market niches.
Though highly regulated industries like healthcare and energy still need help, we don’t need any more food delivery or dating apps. To torture the metaphor, these waters are overfished.
Over the last decade, economics literature has shown a worrying fixation on declining rates of innovation. Research has become less disruptive since the 1970s, argued a recent paper in Nature. Elite institutions produce ever more academic papers and patents but they have less and less impact, mirroring what economist Robert Gordon described in his 2016 book “The Rise and Fall of American Growth.”
If in 2019, the right economic question was where have all the entrepreneurs gone, then here’s the right question in 2024: Where have all the big ideas gone?
Where do ideas come from?
Like politics is downstream of culture, technology and entrepreneurship are downstream of scientific research. Anyone betting their economic strategy on new companies ought to care about where the ideas will come from.
One of the five pillars of how Technical.ly assesses an innovation ecosystem is “invention,” which is most traditionally associated with research and development. Nearly all R&D investment comes from big product-led corporations, higher education institutions and select government agencies.
Silicon Valley added a new twist to the vision of the academic in a lab coat though: the tinkering entrepreneur. Northern California has made a museum out of the garage where Hewlett-Packward was founded. The founding stories of Google, Amazon and Apple are also entwined with garages, all inspiring the disruptor startup trope — elite college dropouts attacking entrenched industry from the outside.
Civic technology and inclusive entrepreneurship movements added the idea of “lived experience,” popularized by Code for America, encouraging would-be entrepreneurs to build “with” not “for” communities and prospective customers.
Good. But entrepreneurship-led economic development leaders — who these days prefer the “ecosystem builder” nomenclature — should be careful about overlooking where ideas come from. The EDA Tech Hubs program committed this summer $500 million in federal funding to a dozen regional coalitions to commercialize advanced technologies, all associated with research universities and other tech transfer programs.
Are we really betting on artificial intelligence to save us?
Many bet artificial intelligence will save us from declining productivity.
Artificial intelligence “swept” the Nobel Prizes announced last week. An AI-powered ideas generator produced more original research than 50 scientists working independently, according to a Nature paper published last month. University of Chicago researchers released last year a model to predict areas for breakthroughs. The National Academies hosted a symposium on the impact AI is having on invention.
All these efforts attempt to mechanize new ideas — something we’ve done before.
In the 1870s, the modern research lab and corporations meant that Americans “invented invention,” as economist Bradford DeLong put it in his 2022 book “Slouching Towards Utopia.” For the following “long twentieth century,” DeLong argued, the world got richer as we got better at identifying problems, developing solutions and bringing them to market. Today, the problems that remain are trickier to solve. Tech boosters say we have another paradigm shift before us.
As Jensen Huang, the leather-jacket wearing CEO of AI darling Nvidia — with a three-trillion-dollar market cap and big plans for Pittsburgh — said last December: “Biology has the opportunity to be engineering, not science.”
If a new wave of solutions to problems for health and energy and disciplines in between, and capital is plentiful, if not evenly distributed, then we could be ready for a new wave of whaling expeditions. A great many cities hope to be the next New Bedford.