Does innovation lead to prosperity for all? the word "innovation" has become the new mythical silver bullet to fix the world economy.

PositionA SYMPOSIUM OF VIEWS

Without a doubt, exciting new technologies, including in robotics, 3-D printing, and gene therapy, are impressive. Blood markers and the ability to reengineer genetic DNA have achieved fantastic breakthroughs. Nanotechnology and biotechnology have improved living standards significantly. In the future, machine-to-machine interfacing and the use of ultra-powerful quantum computing will know no bounds.

But will these innovative breakthroughs raise real income for average working families? The 1930s saw an outbreak of impressive technological progress. The Great Depression continued anyway.

The battle lines are drawn. Some theorists believe new technological innovations that lead to productivity increases are actually the economy's growth and job killers. They cite the fears of many families that someday their kids in the workforce could be replaced by a machine.

Others argue that the economy benefits from as many innovative startup jobs as possible. They stress evidence showing that a half million new tech startup jobs produce 2.5 million other new jobs.

Still others argue that there is not enough innovation. The world's efforts at innovation are on a quality decline, they say, and so therefore is the world economy.

Of course, "productivity," as the writer Adam Davidson puts it, "is a remarkable thing. Only through productivity growth can a wage-earner's quality of life improve." But are wage-earning families seeing the full benefits of today's revolution in innovation?

The year 2012 produced a startling contrast. Eastman Kodak, once with a payroll of 145,000, filed for bankruptcy. Around the same time, Facebook bought a company called Instagram for a billion dollars. What was Instagram? A photo-oriented business...with only thirteen employees.

This issue is complex. But if you were asked by today's G-20 leaders for guidance on how best to approach the issue of innovation as it affects the real economy, what would that advice be? Move more cautiously or full steam ahead, the more innovation the better? Then again, do the G-20 leaders have any say in the matter?

Nearly twenty noted observers offer their views.

There are winners and losers. But the answer is not less innovation, but better use of innovative breakthroughs.

MARTIN N. BAILY

Bernard L. Schwartz Chair in Economic Policy Development and Senior Fellow and Director of the Business and Public Policy Initiative, Brookings Institution

A strict answer to this question would have to be no. Workers who are displaced from their jobs can suffer sharp declines in their incomes. Definitely there are losers from most innovations.

There are winners too. A broader answer to the question is that for much of the twentieth century innovation expanded economic growth, raised millions out of poverty, and was the well-spring of our modern economy. There have been different phases of economic development, however. In the nineteenth century there was a plentiful supply of workers willing to leave the farms or willing to leave Europe to work in American factories and offices at low wages with lousy working conditions. As development continued, the demand for workers grew strongly enough to raise wages and by the 1950s and 1960s there was broad-based prosperity. Innovation and capital accumulation were driving up wages for most workers.

That process has changed, with much slower productivity growth starting in the early 1970s (except for a five-to-ten year period after 1995) and a narrowing of the beneficiaries of economic growth. Skilled and educated workers, successful small business owners, and the owners and managers of well-run larger and multinational companies have seen their incomes or wealth rise strongly while hourly wages for a large segment of the workforce have stagnated. The United States is not alone in facing more adverse economic trends. Japan's economy has stagnated since 1990. Europe's growth has been very slow and rising inequality in pre-tax incomes has been held at bay by redistributive policies.

One explanation for this turn for the worse is that the pace of innovation has slowed down. The big innovations like electricity are behind us and recent innovations like computers and smart phones are of lesser value. I disagree. The pace of technological change seems bewilderingly fast, and Americans seem to value their flat-screen televisions and smart phones very highly indeed.

A different way to look at the trends was triggered by a recent McKinsey study of Mexico which brought out the duality of its economy. It has a very successful modern sector with strong exports, productivity close to best practice, and good jobs. But modern-sector employment is not growing very fast and, as a result, more and more Mexican workers are part of the traditional sector of low-wage jobs where productivity is declining rapidly and real wages are falling. Average productivity growth in Mexico is weak.

The United States is not Mexico, but there is a parallel between the two. There is a "modern" sector here with booming profits, successful innovation, global competitiveness, and good jobs, although not enough of them. More and more of the U.S. workforce is being forced into low-wage, low-productivity jobs, or out of the workforce. In America some of the low-wage jobs are street vendors and such, but many are with big companies in industries such as fast food, retailing, and hotels. The jobs carry little training and the workers typically turn over very quickly and gain little experience. A leading bank CEO told me there is about a 50 percent annual turnover rate among bank tellers, so it is not just the hamburger flipper jobs that have become bad jobs. In the United States, the duality of the labor market is evident within many large companies.

The paradox of the American economy is that the corporate sector is booming, with record profits and a strong stock market. Innovation seems to be everywhere and segments of the workforce are doing very well, especially the top 1 percent. At the same time, median earnings are weak and average productivity growth is slow. The explanation is that the expansion of the low-productivity part of the economy is driving down the averages.

The economic forces driving the shift to a dual economy are skill-biased technical change and increased global competition. If these forces continue and there is a steadily expanding pool of marginalized workers, then I would conclude that innovation is not leading to prosperity for all. The answer is not to have less innovation, but to do a better job of taking advantage of it. There is not enough space to discuss what is needed to do this, but the list includes restoration of full employment, improving skills and education, and making the United States a more attractive location to produce and manufacture. None are easy to do.

Yes, as Solow demonstrated, the ultimate source of sustainable economic growth is innovation.

STAN VEUGER

Resident Scholar, American Enterprise Institute

As Nobel laureate Robert Solow demonstrated in the 1950s, the ultimate source of sustainable economic growth is innovation, that is, the development of new technology, of new organizational forms, and of better modes of governance. At the same time, disruptive new ways of producing and consuming goods and services have always encountered opposition. This opposition is sometimes driven by mere fear of the new or anxiety about the tried and trusted ways of the past disappearing, but more commonly by the distributional impact of new technologies. The famous Luddites of nineteenth-century England, for example, worried aggressively about the replacement of their skilled occupations by newfangled machines operated by low-skilled workers.

The same dialectic is central to the innovation debate today. Advances in fields as diverse as nanotechnology, information technology, and global supply chain management hold the promise of unprecedented levels of prosperity for humanity as a whole, but they have led to widely held concerns about the future of the middle class in the West. The past few decades have seen significant improvements in the standard of living of the poorest citizens of the world and solid gains for the planet's most privileged, but the hollowing out of labor markets in developed countries has led some to believe that a dangerous divergence of prospects is unfolding.

This belief underpins an understandable hesitation to embrace "the glory of this latter house," but as in Haggai's prophecy, the benefits of innovation cannot be underestimated. Economist Xavier Sala-i-Martin of Columbia University has found that hundreds of millions have been lifted out of poverty over the past half century, and that rates of extreme poverty have been reduced by some 50 percent. Anyone with an internet connection now has access to a wealth of information unavailable to even the most powerful masters of the universe in 1970s. The rising threats of HIV/AIDS, malaria, and tuberculosis have been stemmed, and child mortality is nowhere near the levels it was a mere twenty-five years ago. All of these blessings are driven, one way or another, by innovation. The dangers posed by innovation pale in comparison. What political leaders should do is make the case for progress for the many, while helping those whose futures are suddenly a bit bleaker prepare for as painless a transition as possible.

Innovation is getting a bad rap. The problem is with broader economic policy.

DEAN BAKER

Co-Director, Center for Economic and Policy Research

Innovation is getting a bad name these days as many people fear that robots are going to take all of our jobs. This fear is misplaced for a number of reasons, most obviously the fact that productivity growth has actually been rather slow in the years since the downturn. To a large extent people seem to be confusing the effects of bad economic policy with the impact of innovation.

The basic story of innovation on...

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