Any seasoned innovation practitioner would tell you that idea generation is the most straightforward part of the innovation process. Generating ideas is easy, the thinking goes; it is at the stage of testing these ideas and deciding which one to scale into a new venture that the innovation process begins to choke.
Taken to extremes, this mindset feeds the perception that novel ideas are plentiful and cheap. “Ideas are a dime a dozen,” we can often hear. Are they really?
A joint team of researchers from Stanford and MIT has challenged the “plentiful and cheap idea” dogma. They presented empirical evidence showing that research productivity, a scientific term for a layman’s “idea,” is actually declining. According to the authors’ calculations, research productivity across the whole US economy declines at an average rate of 5.3% per year. More specifically, in semiconductors (the playground of the famous Moore’s Law), research productivity is declining at a rate of 6.8% per year; in agribusiness and pharmaceutical research, the annual decline is about 5.0%.
In other words, contrary to a popular belief, ideas are not plentiful. We are experiencing a growing shortage of ideas instead.
If research productivity is on decline, how then has steady economic growth been sustained? The answer is simple: by rising what economists call research effort, which in layman’s terms means the number of researchers. Indeed, the number of researchers required to achieve the famous doubling, every two years, of the density of computer chips (Moore’s Law) is more than 18 times larger today than it was in the early 1970s.
In some areas of agricultural research, the number of scientists has risen 23-fold between 1969 and 2009. And while research productivity responsible for the drugs approved by the FDA between 1970 and 2015 has been declining at an annual rate of 3.5%, this decline was offset by the 6.0% annual growth in the number of involved researchers.
Now, if the number of ideas is declining while the number of people generating them is growing, how can these ideas be cheap? They cannot. The ideas are becoming more, not less, expensive.
One can hope that at least the quality of novel ideas remains high. Alas, there is little evidence supporting this intellectual refuge. Consider this: by the end of 2019, the venture capital industry had accumulated a whopping $121 billion in so-called “dry powder,” the money for which venture capitalists failed to find ideas to invest in. So much for plentiful and cheap innovative ideas!
Let’s ponder for a minute over this fundamental question: where should novel ideas come from in the first place? The answer looks obvious: from R&D, where else?
Exactly, and here is the root of the problem. In the decades that followed World War II, entirely new sectors of the U.S. economy have been created, such as jet aircraft, modern-day pharmaceuticals, microelectronics, satellites, and digital computers. All these developments happened thanks to a heavy infusion of public money, with the federal government contributing more than 50% of R&D expenses.
Although the total US spending on R&D has remained steady for the past years, at 2.5% of GDP, only about 30% of the money now comes from the federal government; 70% of it is contributed by the private sector. With its focus on rapid ROI and the competition, will private sector spend money on fundamental – and, therefore, inevitably long-term and potentially risky – R&D projects? No.
The quality of novel ideas is declining because sources of new scientific discoveries in the United States are gradually drying up. Yes, the industry can still generate incrementally innovative combinations of old ideas – which indeed may already be plentiful and cheap – but it will fail to create breakthrough innovations.
We need a renewed focus on idea generation. We need to highlight current gaps in our scientific knowledge and to draw a step-by-step roadmap to bridging these gaps – with sources of funding clearly identified. We need to resume spending public money on R&D at the level that ensured the U.S. domination in innovation in the past.
It is time to bring “idea” back to innovation.
Check out my eBook, “We the People of the Crowd…,” a collection of stories about crowdsourcing reflecting my personal experience in working with corporate and nonprofit clients.
Image credit: Josh Appel on Unsplash